A key element of any financial plan is retirement planning A prolonged period of poor equity market performance and low interest rates has highlighted how many Americans are ill-prepared for retirement. As of 2011, the average 401(k) balance for an American worker is approximately $75,000. See the following website: “http://www.reuters.com/article/2011/05/11/us-retirement-fidelity-idUSTRE74A0L720110511”
Although this is an improvement over the situation during the depths of the recent financial crisis, it is far too low to provide sufficient income replacement for most people. In addition, the Social Security system is not sustainable over the long run at its current level of funding. According to the 2011 OASDI Trustees Report, the DI trust fund is projected to be exhausted by 2018, and the OASI trust fund is projected to be exhausted by 2038. See pages 10 and 11 on the following website: http://www.ssa.gov/oact/tr/2011/tr2011.pdf
It is therefore clear that in most cases, a supplemental source of retirement income will be necessary if a secure retirement is to be achieved. One way to do this is to try to take maximum advantage of any pension income that is available by augmenting it with supplemental income, ideally realizing tax efficiencies and investment efficiencies as part of the design.
By way of background, pension plans can pay income for the lifetime of the employee (a single life annuity) or for the longer of the lifetime of the employee and his or her spouse (a joint and survivor annuity). The monthly income provided by a joint and survivor annuity is lower than that provided by a single life annuity—typically on the order of 80% of the single life annuity, depending on the age of the employee and spouse.
The U.S. federal pension law (ERISA) requires that the automatic option for retirement benefits for an employee that has been married for at least a year must be a joint and survivor annuity (i.e. one paying a lower amount than the single life annuity) unless the employee elects otherwise with the consent of the spouse. The spouse's consent must be in writing and must be witnessed by a notary public or a representative of the pension plan. See Fundamentals of Private Pensions, Eighth Edition, by Dan M. McGill, Kyle N. Brown, John J. Haley, Sylvester J. Schieber, Oxford University Press, © 2005, pages 254-256.
Clearly the desire to maximize pension income must be balanced with the natural desire to provide for the spouse's wellbeing if the employee should die first. Some degree of guarantee of the amount and timing of supplemental income is required if the employee and spouse are to make such a decision in an informed way. Also note that even if a breadwinner is not a member of a pension plan, the same type of analysis would apply if purchase of a nonqualified immediate annuity were being considered.
Traditionally, insurance products have been the best tool for individuals to manage mortality risk (through purchase of life insurance) and its obverse, longevity risk (through purchase of annuities). In this particular case, a reversionary annuity could potentially help maximize retirement income. Note that a reversionary annuity is not the same as a typical deferred or immediate annuity. It is defined as follows:                “The survivorship annuity, also referred to as reversionary annuity, provides that if the beneficiary should outlive the insured, the beneficiary will receive a predetermined income for life, regardless of his or her age at the insured's death. If the beneficiary predeceases the insured, however, the contract terminates and no further premiums or benefits are payable.”See Life Insurance, 12th Edition, Prentice Hall, Kenneth Black, Jr., Harold D. Skipper, Jr., ©1994, p. 168. Also see U.S. Pat. No. 5,754,980. The owner of the reversionary annuity can be the insured, the beneficiary, or a third party.        
Note that in its current form, the reversionary annuity is fully guaranteed and therefore has no ability to respond to changing investment conditions (as was characteristic of products developed in an era of low and stable interest rates). There is no element of income adjustability—the fixed amount of income is stated in the contract, the amount determined by the issuer based on yield curve on the date of issue and the expected mortality of the insured and beneficiary.
It is not obvious how to adapt the reversionary annuity to current economic conditions, since its current form requires locking in extremely low interest rates (at time of writing, a 1.99% yield on a 10-year Treasury) for the life of the product. If inflation were to accelerate then the purchasing power of a fixed annual payout would diminish very quickly. Additionally, locking in the lowest interest rates in 70 years does not seem to be a wise decision. These factors make the reversionary annuity as it exists today unsuitable for pension maximization, or as a supplement to purchase of an immediate annuity.